How to pick a stocks and shares ISA: Our experts share their picks from tens of thousands of funds so you don’t have to – from a safe first investment to potential returns of more than 83pc
An Individual Savings Account (Isa) is a great starting place for any investor. You can put up to £20,000 into these accounts each year and all the gains are tax-free.
It’s also easy to access your cash in an emergency – but with tens of thousands of funds and stocks to choose from, deciding where to invest your money can be tricky.
Knowing your goals and understanding your tolerance for risk will help whittle down the options.
Consider how long you plan to invest (experts suggest five years at least) and whether you need to focus on growing your wealth or if you need to generate an income.
Beginners could start with a multi-asset fund, a one-stop shop investment spreading your money across a range of assets including stocks, bonds, property and gold.
Rob Morgan, of investment group Charles Stanley, suggests Troy Personal Assets investment trust, which has 8 per cent of its portfolio in gold, but also holds government bonds and shares of large companies including Diageo and Chubb. It has returned 19.9 per cent over five years.
Those willing to take more risk could opt for a global equity fund, which invests in companies worldwide. ‘This gives you a diversified base to build the rest of your portfolio from,’ says Darius McDermott, of ratings agency FundCalibre.
He likes Brunner Investment Trust, which invests in 40 to 60 stocks worldwide including Visa, Tesco and French energy firm Schneider Electric. It has returned 63.3 per cent over three years.
For some investors, particularly retirees, income is the priority. There are several ways funds can invest to meet this need – from bond funds to equity income funds
If you can afford the risk and don’t need to access the money soon, adding racier investments can help boost returns. It is usually sensible to have a smaller portion of your money in these.
McDermott names International Biotechnology Trust, which invests in life sciences businesses focusing on specific areas, such as oncology. Some of its investments are in private companies not yet listed on the stock market, which can be riskier as they do not have to share as much financial data. The fund has returned 82.5 per cent over five years.
BlackRock World Mining Trust could be an option for those looking to benefit from the AI infrastructure boom without putting money only in tech stocks. The trust invests in firms mining the materials needed to power data centres, robotics, electric vehicles and more. The fund has returned 83.5 per cent over five years.
Asia is home to some of the fastest-growing economies, with a young, increasingly wealthy population. McDermott suggests looking at Matthews Pacific Tiger fund. Top holdings include Taiwan Semiconductor, Samsung Electronics and Alibaba, the Chinese e-commerce platform. It has returned 24 per cent over five years but done better in the short-term, up 37 per cent over a year.
For some investors, particularly retirees, income is the priority. There are several ways funds can invest to meet this need.
Equity income funds invest in the shares of dividend-paying companies and use this to pay an income to their own investors. Here, McDermott rates the Guinness Global Equity Income fund, which invests in the likes of Coca-Cola and Swiss pharmaceutical firm Roche. It has returned 59.9 per cent over five years and has a dividend yield of 2.61 per cent.
Bond funds invest in debt issued by companies and governments and receive an interest payment (known as a coupon). Morgan points to the Ninety One Diversified Income fund, which holds a blend of bonds, stocks and other assets. It holds debt issued by the US, UK, Australian and Brazilian governments. The fund has returned 14.4 per cent over five years and yields 4.4 per cent.
Other funds pay out an income from the rents they receive on property they invest in, such as offices, warehouses and shopping malls, or infrastructure assets, such as schools and hospitals.
One option here is the FTF ClearBridge Global Infrastructure Income fund, which invests in firms that operate in roads, rail and airports as well as utilities.
Top holdings include Entergy, a US energy provider, and Aena, which manages 46 airports and two heliports across Spain. It has returned 51.2 per cent over five years and yields 4.3 per cent.
Investors can choose to have their income paid out, which can help cover their living costs, while leaving their original capital invested to keep growing.
But these funds can still suit those who prioritise growth. Choosing the ‘accumulation’ units of a fund means the income is automatically reinvested, rather than paid out to you, helping to further boost returns.
